When making a permanent change of station or PCS, the military allows service members to request an advance of up to three months of basic pay to cover unreimbursed expenses. The question is, should you utilize this option?
"Because advance pay is essentially an interest-free loan, some people see it as a 'Why not?' opportunity," says Scott Halliwell, a Certified Financial Planner™ practitioner with USAA. "But there can be significant downsides. Asking for advance pay should really be a last resort move."
What's the harm?
First off, the advance pay option isn't "free money." It's a loan that must be paid back. Except in extreme cases, you're required to repay the advance in monthly installments over the course of a year, starting the first month after you receive the money.
"If you take the advance, you're committing yourself to a smaller paycheck for the next year," says Halliwell. "That can cause problems when other big expenses pop up after the move."
Already living on a reduced income, military families could find themselves stuck in a dangerous cycle of debt, spending on credit cards or even taking out a new loan while they pay off the original advance.
Does it ever make sense?
While the military provides allowances to help pay for PCS expenses, sometimes the circumstances under which you move can create extraordinary costs. Transportation of people and vehicles, temporary storage of household items and/or delays in securing a new home can cost big bucks — often more than the government reimburses — especially when you have a spouse and children in tow.
"If you're facing unavoidable expenses and you don't have savings to pay for them, the advance pay option could be the best choice," says Halliwell. "Since the debt is interest-free and you're forced to pay it back quickly, it's probably a better option than using a credit card, where the debt could linger for years."
All requests for advance pay must be reviewed and approved by your commander or a higher authority, depending on how much money you apply for. The approval process helps to ensure service members are taking the loan for the right reasons and could require you to provide proof of need. Since there's no guarantee you'll be approved, it's better not to need the money in the first place.
When you join the military, it's all but certain that you'll have to PCS within a few years. "So start saving for it now," says Halliwell.
"Contributing a small amount of money every month to a savings account can add up over time and give you a financial cushion when you need it," he says.
If you're still in a pinch when it's time to PCS, there are other ways to drum up some extra cash. Hold a garage sale, for example, or sell some of your unneeded items online or through newspaper classifieds. Not only will it help pay for moving expenses, it will lighten your load and reduce the cost and effort of transporting your belongings.
As you get established in your new home, Halliwell also suggests using the move as an opportunity to re-evaluate your budget and make changes.
"In a way, PCS allows you to hit the reset button and start over, making better financial decisions," he says. Choosing to live in a less expensive house or apartment, switching to a more economical car or opting out of the 900-channel satellite package can free up cash quickly.
So the next time PCS orders come your way, borrowing money may never cross your mind.
USAA's licensed, salaried financial advisors know the military and know how to help during big moves like PCS. To get free, professional guidance, call a USAA Financial Advisor at 1-800-771-9960.